Populism and income redistribution

• Published in: Economics letters 2020-01, Vol.186, p.108773, Article 108773
• Main Authors: Campos, Luciano, Casas, Agustín
• Format: Article
• Language: English
• Subjects: Argentina; Income distribution; Income redistribution; Inflation; Innovations; Long-run restrictions; Macroeconomics of populism; Populism; Productivity; Raises; Real wages; Structural VARs; Wages & salaries
• ISSN: 0165-1765; 1873-7374
• DOI: 10.1016/j.econlet.2019.108773

Populist governments might attempt to favor workers in the short-run by encouraging nominal wage increases. But if the real wage can only be affected by productivity in the long-run, these redistributive attempts would lead to inflation and no real improvement. Based on this widely accepted argument, this paper proposes a simple method to disentangle productivity from, what is here called, populist shocks. In particular, a Bivariate Structural Vector Autoregressive analysis with nominal and real wages, and where long-run restrictions are imposed, can be used to identify these two structural innovations. The methodology is applied to Argentina using data from 1865 to 1974 to identify populist regimes. •We abstract from campaign promises and speech analysis to identify populism.•Instead we define it in terms of redistributive economic policies (wage setting).•We use Argentine historical data since 1860 for nominal wages and inflation.•We find that some presidents classified as populist do not fall into this category•An example of the above are Perón and Yrigoyen, classified as populists elsewhere.